Can subnational autonomy strengthen democracy in Bolivia?

Bolivia is one of the most radical and sincere of decentralization reformers. It recently implemented new reforms granting autonomy to departmental, regional, municipal, and indigenous and rural governments. What effects might these have on public investment patterns, government responsiveness, intergovernmental fiscal relations, the sustainability of public finances, and political accountability? I examine autonomies in light of both fiscal federalism theory and evidence on the effects of Bolivia's 1994 decentralization. By submitting new reforms to the dual rigors of theory and evidence, we can arrive at contingent projections of their likely effects. I identify adjustments to improve efficiency and sustainability in intergovernmental relations, and reduce horizontal imbalances. In sum, the reform has the potential to improve citizen participation, make government more accountable, and deepen Bolivian democracy

Fiscal decentralization and economic growth in central and Eastern Europe

The majority of the literature on fiscal decentralization has tended to stress that the greater capacity of decentralized governments to tailor policies to local preferences and to be innovative in the provision of policies and public services, the greater the potential for economic efficiency and growth. There is, however, little empirical evidence to substantiate this claim. In this paper we examine, using a panel data approach with dynamic effects, the relationship between the level of fiscal decentralization and economic growth rates across 16 Central and Eastern European countries over the 1990–2004 period. Our findings suggest that, contrary to the majority view, there is a significant negative relationship between two out of three fiscal decentralization indicators included in the analysis and economic growth. However, the use of different time lags allows us to nuance this negative view and show that long-term effects vary depending on the type of decentralization undertaken in each of the countries considered. While expenditure at and transfers to sub-national tiers of government are negatively correlated with economic growth, taxes assigned at the sub-national level evolve from having a significantly negative to a significantly positive correlation with the national growth rate. This supports the view that sub-national governments with their own revenue source respond better to local demands and promote greater economic efficiency

Empowering rural people for their own development

This Elmhirst lecture first discusses the factors that allow rural people in low-income countries to design, plan, and implement their own rural development. These are divided into two broad groups: the institutional environment for rural development (the private sector, communities, civil society, local government, and sector institutions) and the factors governing profitability of investment in agriculture. While in many poor countries the institutional environment has improved over the last 20 years, the most poorly performing countries still have by far the poorest environment for local government in the world. Within an empowering institutional environment, the rate of agricultural and rural development is determined by investments of many different types that in turn depend primarily on the profitability of agriculture. Among the many factors that determine profitability few are under the direct control of farmers or agricultural sector institutions, but depend on governance and investments in other sectors such as trade and transport. In many of the poorest countries there has been considerable improvement in macro-economic management and sector policies over the past 20 years, but progress in international and intra-regional trade policies, in agricultural trade policies, in transport infrastructure, and in agricultural research and extension has been limited. Copyright 2007 International Association of Agricultural Economists.